The Financial Forecast Center™
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The methodology FFC uses to forecast various financial indicators also enables the identification of causal factors. We can find the various factors, such as interest rates or inflation, that help move the U.S. stock markets up or down.
After about an 8 to 12 month lag, the M1 money supply becomes a significant driver of the stock markets. While the M1 is one cause of the rise in the stock markets, it is not the only cause.
Below is a chart of the Wilshire 5000 from 1990 to present. Also included is the M1 money supply. After the Great Recession around 2009, the money supply started trending up at a much higher rate than any time in the past.
Beginning in late 2008, the Federal Reserve's easy monetary policies coupled with the unprecedented rise in federal government spending started pushing the M1 up at a faster rate than in the past. The growth of the money supply is monetary inflation, one cause of real inflation.
Simply put, the stock markets are keeping up with real inflation.